I attach a slide from a presentation by Marc Lavoie given at Minsky Summer school in 2010 at the Levy Institute of Economics (Bard College).

There are several FINTECH innovations which are bringing about dramatic changes in the financial services business.

Block Chain and Distributed Ledgers

Payment Banks

Retail P2P Payment services

Mobile Payments

Secured Wallets

Domestic Real Time Payments and Transfers

Cross Border Near Real time Money Transfers

Block Chain and Distributed Ledgers, in my opinion, are/can be implementation of quadruple accounting principles envisioned by Morris Copeland and Hyman Minsky. Two economic agents engage in financial transactions which are recorded in distributed ledgers.

Some of the key components of distributed ledger technology are:

Peer-To-Peer Networking

Cryptography

Distributed Data Storage

In contrast with centralized ledgers, distributed ledgers store data at each node in the P2P network. So there is no need for an intermediating institution. From a payment system perspective, each node in the P2P network can be thought of as a bank. Each node will have its own ledger and balance sheet which will record assets and liabilities.

Ripple is a Cross Border money transfer solution which is based on block chain technology.

Recent rise of retail P2P payment services such as

Xoom

M-Paisa

PayTM

indicates a trend toward real time payments/money transfers domestic and international. This trend also indicates decoupling of these services from traditional deposit/lending banks. XOOM is a service provided by PAYPAL for international Money Transfers. Money transfers are within a few minutes.

In USA, there are new P2P services offered to facilitate faster near real time payments/money transfers through mobile and online interfaces.

Venmo (Paypal)

Zelle (clearXchange Network)

Square Cash

Braintree (Paypal)

There are also social media payments available now through which consumers can quickly send money using social media applications such as

Facebook (through Messanger app)

Snapcash (through SnapChat)

Apple PayCash (through imessages app)

TenCent via WeChat

Rise of payment banks such as PayTM is one such example. Reserve Bank of India has granted PayTM a payment bank status. But transfers are still between bank accounts of transacting consumers where deposits are kept. Payment Bank acts as a technology provider and acts as an intermediary.

As per the RBI guidelines, payments banks cannot lend they can only take deposits or accept payments.

Trends in Cross Border Mergers and Acquisitions

From The Location of Cross-Border Mergers & Acquisitions in the USA

The vast majority of foreign direct investment (FDI) takes place in the form of cross-border mergers and acquisitions (M&As), see Evenett (2004). Analyzing the determinants and consequences of M&As is part of a large and growing literature in both (international) economics and (international) business. In economics, the dominant industrial organization (IO) literature does, however, typically not deal with the cross-border aspect of M&As, but instead concentrates on national M&As (Salant et al., 1983; O’Brien and Shaffer, 2005; Davis and Wilson, 2008; Egger and Hahn, 2010). A relatively small literature explicitly tries to include the cross-border aspect of M&As, but neglects the role of country factors that are central in international economics and international business to explain the structure and variation of cross-border transactions (Anand and Delios, 2002; Nocke and Yeaple, 2007, 2008, Bertrand and Zitouna, 2006; Fugmagalli and Vasconcelos, 2009, Halverson, 2012). The impact of country wide differences on cross-border M&As is taken explicitly into account by Neary (2004, 2007) who focuses on differences in comparative advantage between countries in a general equilibrium model to explain the occurrence of cross-border M&As. Empirical support for this idea is found by Brakman et al (2013), see also Blonigen et al (2014). In the international business literature – ever since the introduction of Dunning’s Ownership-Location-Internalization (OLI) framework – the mode of foreign entry and the choice of a foreign location have been central, but not explicitly modelled, as the OLI framework is more a taxonomy of relevant elements for location choice than a model (see for example Dunning, 2000).2

Both for the modern international business and international economics literature, however, whenever the location of cross-border M&As is taken into account, it usually refers to the host country as a whole. Where to locate the M&A within the host country is not analyzed. This amounts to assuming that if foreign firms have decided to engage in an M&A they choose a country but are indifferent regarding the target location within that country. This observation is the starting point for the present paper. In contrast to this observation with respect to cross-border M&As, the within country location choice with respect to greenfield FDI has been analyzed in depth. The seminal study by Head et al. (1995) was pivotal, and initiated a large and growing body of literature; see for example Fontagne and Mayer (2005); Basile et al., (2008); Defever, (2006); or Mataloni, (2011). Similar analyses for cross-border M&As are largely absent and this is striking because the bulk of FDI is in the shape of cross-border M&As. A priori, there is no reason to assume that the location decision of greenfield investments and M&As are similar. M&As, by definition, merge with or acquire existing firms at a specific location, whereas greenfield investments can, in principle, locate anywhere.

From Economic and Financial Integration and the Rise of Cross-Border M&As

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

Most of the Foreign Direct Investment (FDI) is in the form of Cross Border M&A.

The motivation for Cross Border M&A can be several:

Horizontal Integration ( Seeking Market Share)

Vertical Integration ( Control of Supply Chain)

Diversification (Market Seeking)

Research indicate that most of the cross border M&A are for seeking markets.

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

Cross Border Mergers have been rising since 1985.

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

Europe and North America dominate regions in which cross borders M&A are taking place.

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

From M&A Today: A Quick Pre-Financial Crisis Comparison

Sources of M&A Data:

From Exploration of Mergers and Acquisitions Database: Deals in Emerging Asian Markets

There are four popular mergers and acquisitions databases,

SDC Platinum Mergers & Acquisitions (M&A) database,

Bloomberg M&A database,

Mergerstat M&A database,

ZEPHYR M&A database.

The SDC Platinum M&A Database covers domestic deals from 1979 to present and international deals from 1985 to present. Thomson Reuters states that the SDC includes more transactions than any other source and is widely used by the industry professionals and academic researchers.

The Bloomberg M&A database began putting the mergers and acquisitions product together in January 1998, with the intention of providing “100 percent coverage of all global deals as they were announced” (Ide, 2001). Bloomberg states that it has mergers and acquisitions staff in 12 offices worldwide compiling M&A data and relationships with over 800 legal and financial firms.

According to the Zimmerman (2006), the Mergerstat database covers both acquisitions and divestitures where at least one significant party is a U.S. company.

the ZEPHYR database covers transactions both inside and outside the U.S. and is particularly useful to study M&A deals in Europe (from 1997 forward for European transactions; from 2000 forward for North American transactions; global coverage begins in 2003).

Top Institutions and Economists Now Say Globalization Increases Inequality

We’ve all heard that globalization lifts all boats and increases our prosperity …

But mainstream economists and organizations are now starting to say that globalization increases inequality.

The National Bureau of Economic Research – the largest economics research organization in the United States, with many Nobel economists and Chairmen of the Council of Economic Advisers as members – published, a report in May finding:

Recent globalization trends have increased U.S. inequality by disproportionately raising top incomes.

***

Rising import competition has adversely affected manufacturing employment, led firms to upgrade their production and caused labor earnings to fall.

NBER explains that globalization allows executives to gain the system to their advantage:

This paper examines the role of globalization in the rapid increase in top incomes. Using a comprehensive data set of thousands of executives at U.S. firms from 1993-2013, we find that exports, along with technology and firm size, have contributed to rising executive compensation. Isolating changes in exports that are unrelated to the executive’s talent and actions, we show that globalization has affected executive pay not only through market channels but also through non-market channels. Furthermore, exogenous export shocks raise executive compensation mostly through bonus payments in poor-governance settings, in line with the hypothesis that globalization has enhanced the executive’s rent capture opportunities. Overall, these results indicate that globalization has played a more central role in the rapid growth of executive compensation and U.S. inequality than previously thought, and that rent capture is an important part of this story.

A World Bank document says globalization “may have led to rising wage inequality”. It notes:

Recent evidence for the US suggests that adjustment costs for those employed in sectors exposed to import competition from China are much higher than previously thought.

***

Trade may have contributed to rising inequality in high income economies ….

The World Bank also cites Nobel prize-winning economist Eric Maskin’s view that globalization increases inequality because it increases the mismatch between the skills of different workers.

High trade and financial flows between countries, partly enabled by technological advances, are commonly cited as driving income inequality …. In advanced economies, the ability of firms to adopt laborsaving technologies and offshoring has been cited as an important driver of the decline in manufacturing and rising skill premium (Feenstra and Hanson 1996, 1999, 2003) ….

***

Increased financial flows, particularly foreign direct investment (FDI) and portfolio flows have been shown to increase income inequality in both advanced and emerging market economies (Freeman 2010). One potential explanation is the concentration of foreign assets and liabilities in relatively higher skill- and technology-intensive sectors, which pushes up the demand for and wages of higher skilled workers. In addition, FDI could induce skill-specific technological change, be associated with skill-specific wage bargaining, and result in more training for skilled than unskilled workers (Willem te Velde 2003). Moreover, low-skill, outward FDI from advanced economies may in effect be relatively high-skilled, inward FDI in developing economies (Figini and Görg 2011), thus exacerbating the demand for high-skilled workers in recipient countries. Financial deregulation and globalization have also been cited as factors underlying the increase in financial wealth, relative skill intensity, and wages in the finance industry, one of the fastest growing sectors in advanced economies (Phillipon and Reshef 2012; Furceri and Loungani 2013).

The Bank of International Settlements – the “Central Banks’ Central Bank” – also notes that globalization isn’t all peachesandcream. The Financial Times explains :

A trio of recent papers by top officials from the Bank for International Settlements goes further, however, arguing that financial globalisation itself makes booms and busts far more frequent and destabilising than they otherwise would be.

Most economists have been blindsided by the backlash [against globalization]. A few saw it coming. It is worth studying their reasoning ….

***

Branko Milanovic of the City University of New York believes such costs perpetuate a cycle of globalisation. He argues that periods of global integration and technological progress generate rising inequality ….

Supporters of economic integration underestimated the risks … that big slices of society would feel left behind ….

Were the experts wrong about the benefits of trade for the American economy?

***

Voters’ anger and frustration, driven in part by relentless globalization and technological change [has made Trump and Sanders popular, and] is already having a big impact on America’s future, shaking a once-solid consensus that freer trade is, necessarily, a good thing.

“The economic populism of the presidential campaign has forced the recognition that expanded trade is a double-edged sword,” wrote Jared Bernstein, former economic adviser to Vice President Joseph R. Biden Jr.

What seems most striking is that the angry working class — dismissed so often as myopic, unable to understand the economic trade-offs presented by trade — appears to have understood what the experts are only belatedly finding to be true: The benefits from trade to the American economy may not always justify its costs.

In a recent study, three economists — David Autor at the Massachusetts Institute of Technology, David Dorn at the University of Zurich and Gordon Hanson at the University of California, San Diego — raised a profound challenge to all of us brought up to believe that economies quickly recover from trade shocks. In theory, a developed industrial country like the United States adjusts to import competition by moving workers into more advanced industries that can successfully compete in global markets.

They examined the experience of American workers after China erupted onto world markets some two decades ago. The presumed adjustment, they concluded, never happened. Or at least hasn’t happened yet. Wages remain low and unemployment high in the most affected local job markets. Nationally, there is no sign of offsetting job gains elsewhere in the economy. What’s more, they found that sagging wages in local labor markets exposed to Chinese competition reduced earnings by $213 per adult per year.

In another study they wrote with Daron Acemoglu and Brendan Price from M.I.T., they estimated that rising Chinese imports from 1999 to 2011 cost up to 2.4 million American jobs.

“These results should cause us to rethink the short- and medium-run gains from trade,” they argued. “Having failed to anticipate how significant the dislocations from trade might be, it is incumbent on the literature to more convincingly estimate the gains from trade, such that the case for free trade is not based on the sway of theory alone, but on a foundation of evidence that illuminates who gains, who loses, by how much, and under what conditions.”

***

The case for globalization based on the fact that it helps expand the economic pie by 3 percent becomes much weaker when it also changes the distribution of the slices by 50 percent, Mr. Autor argued.

And Steve Keen – economics professor and Head of the School of Economics, History and Politics at Kingston University in London – notes:

Plenty of people will try to convince you that globalization and free trade could benefit everyone, if only the gains were more fairly shared. The only problem with the party, they’ll say, is that the neighbours weren’t invited. We’ll share the benefits more equally now, we promise. Let’s keep the party going. Globalization and Free Trade are good.

This belief is shared by almost all politicians in both parties, and it’s an article of faith for the economics profession.

***

It’s a fallacy based on a fantasy, and it has been ever since David Ricardo dreamed up the idea of “Comparative Advantage and the Gains from Trade” two centuries ago.

***

[Globalization’s] little shell and pea trick is therefore like most conventional economic theory: it’s neat, plausible, and wrong. It’s the product of armchair thinking by people who never put foot in the factories that their economic theories turned into rust buckets.

So the gains from trade for everyone and for every country that could supposedly be shared more fairly simply aren’t there in the first place. Specialization is a con job—but one that the Washington elite fell for (to its benefit, of course). Rather than making a country better off, specialization makes it worse off, with scrapped machinery that’s no longer useful for anything, and with less ways to invent new industries from which growth actually comes.-

Excellent real-world research by Harvard University’s “Atlas of Economic Complexity” has found diversity, not specialization, is the “magic ingredient” that actually generates growth. Successful countries have a diversified set of industries, and they grow more rapidly than more specialized economies because they can invent new industries by melding existing ones.

***

Of course, specialization, and the trade it necessitates, generates plenty of financial services and insurance fees, and plenty of international junkets to negotiate trade deals. The wealthy elite that hangs out in the Washington party benefits, but the country as a whole loses, especially its working class.

Some Big Companies Losing Interest In Globalization

Ironically, the Washington Post noted in 2015 that the giant multinational corporations themselves are losing interest in globalization … and many are starting to bring the factories back home:

Yet despite all this activity and enthusiasm, hardly any of the promised returns from globalization have materialized, and what was until recently a taboo topic inside multinationals — to wit, should we reconsider, even rein in, our global growth strategy? — has become an urgent, if still hushed, discussion.

***

Given the failures of globalization, virtually every major company is struggling to find the most productive international business model.

***

Reshoring — or relocating manufacturing operations back to Western factories from emerging nations — is one option. As labor costs escalate in places such as China, Thailand, Brazil and South Africa, companies are finding that making products in, say, the United States that are destined for North American markets is much more cost-efficient. The gains are even more significant when productivity of emerging countries is taken into account.

***

Moreover, new disruptive manufacturing technologies — such as 3-D printing, which allows on-site production of components and parts at assembly plants — make the idea of locating factories where the assembled products will be sold more practicable.

***

GE, Whirlpool, Stanley Black & Decker, Peerless and many others have reopened shuttered factories or built new ones in the United States.

Key Sources of Research

Trading Down: Unemployment, Inequality and Other Risks of the Trans-Pacific Partnership Agreement

For political reasons, if Italy or Greece decide to leave the EMU, then they are supposed to settle their debts. But they can not do that. Other countries in EMU will have to bear the burden of unpaid debts of leaving countries.

There are many lessens for other regions around the world who are contemplating monetary unions. AMU in ASEAN region is one such example. They should carefully learn from experiences of EMU as how not to do things.

From Money & Credit: Eurozone TARGET2

From Germany TARGET2 – Balance

TARGET2 is a payment system that enables the speedy and final settlement of national and cross-border payments in central bank money. An average of around 350,000 payments with a value of just under €2½ trillion are processed using TARGET2 each working day, a figure which is broadly equivalent to the size of Germany’s GDP. During a whole year, TARGET2 settles about 90 million payments with a value of about € 600,000 billion. These payment transactions can take a wide variety of forms, such as payment for a goods delivery, the purchase or sale of a security, the granting or repayment of a loan or the depositing of funds at a bank, among many others.

In addition to payments between credit institutions and from other systems (eg securities settlement systems), payments undertaken as part of the Eurosystem’s open market operations are settled via TARGET2.

If, for example, foreign funds are transferred to a bank that participates in TARGET2 via the Bundesbank, this results in a liability of the Bundesbank to this bank (such as in the form of a credit to this amount on the bank‘s current account). In return, the transaction generates a Bundesbank claim for the same sum on the sending central bank. This central bank then in turn debits the account of the originating commercial bank. This requires the originating commercial bank to have a sufficient credit balance in central bank money. Central bank credit balances are primarily provided by the Eurosystem’s monetary policy refinancing operations.

The resulting claims and liabilities generated at the national central banks by the multiple transactions over the course of a day normally do not fully balance out. Under the terms of a Eurosystem agreement, the outstanding claims and liabilities of all the national central banks participating inTARGET2 are transferred to the ECB at the end of the business day, where they are netted out. The resulting TARGET2 (net) balances hence arise from the cross-border distribution of central bank money within the Eurosystem’s decentralized structure.

The TARGET2 balance in the Bundesbank’s balance sheet is therefore mainly attributable to cross-border transactions which involve banks that participate in TARGET2 via the Bundesbank (several banks from other EU countries participate in TARGET2 via the Bundesbank in cases where their own national central banks do not participate in TARGET2). On the one hand, it is affected by credit institutions’ operations on the money and capital markets and, on the other, by transactions carried out by the non-banking sector, which generates payments via the banking system.

From TARGET2 balances

From Interpreting TARGET2 balances

The existence of a substantial German claim on the Eurosystem is well known. As shown in Graph 1, since the beginning of the financial crisis in August 2007, claims of the Deutsche Bundesbank on the Eurosystem through the TARGET2 system have gone from basically zero to more than €700 billion.1 This has led to a debate over what this accumulation means and what, if anything, should be done about it.

Interpretations of this and other TARGET2 balances fall into two camps. The first, judged a minority view by Auer (2012), is that these balances correspond to current account financing. We label this the flow interpretation. Proponents have included most prominently Sinn and Wollmershäuser (2012), whose views originally appeared as a working paper a year ago (Sinn and Wollmershäuser (2011)).2 Fahrholz and Freytag (2012) take the view that the current account imbalance will create persistent TARGET2 balances.

The second camp, including Buiter et al (2011), Mody and Bornhorst (2012), Bindseil and König (2012), and3 Cecioni and Ferrero (2012) interprets TARGET2 balances as a “capital account reversal”. That is, they see this as one symptom of a balance of payments crisis. Bindseil and König (2012) argue that the Eurosystem full allotment refinancing operations should be seen as financing the reversal of an outstanding stock of cross-border claims while the TARGET2 payments system merely records the results. We label this the stock interpretation, and trace it originally to Garber (1999).

The members of the European Economic Advisory Group (2012) take an intermediate position. They read Sinn and Wollmershäuser (2011) as arguing that Greece and Portugal financed their current account deficits in 2008 to 2010 through TARGET2, while Ireland’s TARGET2 balance was associated with a capital outflow and Spain’s TARGET2 balance financed only a quarter of its cumulated current account. Italy is identified as a case of “capital flight” in late 2011. More formally, Auer (2012) uses panel regressions to find that the TARGET2 balances track both current accounts and bank flows from Q3 2007 to Q1 2012.

Our work is most closely related to that of Auer (2012).4 Like him, we juxtapose TARGET2 balances with both current account and capital flow data, using BIS banking data. The new element in our work is that we distinguish between capital flows motivated by concerns over creditworthiness and those motivated by the low probability of redenomination.